The market impact of a CDM capacity fund

This paper, prepared with the financial support of the Secretariat of the United Nations Framework DMonvention on Climate Change, explores the possible market impact of a CDM capacity fund. It investigates the impact of a fund focussing on purchasing credits from existing projects, suggesting that a fund of €2.5 – €3.0 billion may be needed to have a fundamental impact on the supply-demand balance in the market, but that a smaller sized fund could still generate some benefits. The report also explores how a fund that focusses on credits from new projects might be designed, suggesting that placing a floor price in the market could be attractive. Finally, it outlines the key considerations that policymakers may wish to take into account if choosing between a fund focussed on credits from existing or new projects. The paper responds to the recommendation made in last year’s report by the High-Level Panel on the CDM Policy Dialogue (‘A Call to Action’) to consider establishing such a fund and is intended to contribute to ongoing dialogue with policymakers on this topic.